Tax-saving strategies to get in place before June 30

The end of the financial year will ring in many changes to superannuation and personal allowances while ringing out popular concessions for property investors and home buyers.

Adrian Raftery, an associate professor in tax, financial planning and superannuation at Deakin University, says now more than ever it’s crucial for individuals and small business owners to take ownership of the upcoming changes.

“With a raft of changes coming into play on July 1, a lack of attention now may cost you tens of thousands of dollars down the track, ” he warns.

But it is being made even harder this year because of dozens of confusing tax proposals being debated about superannuation, particularly self-managed super funds (SMSFs).

Tax rates for individuals
Tax rates for individuals

“Overlooking compliance would be understandable given all the changes being considered,” says SMSF Association chief executive John Maroney. “But it’s imperative members are across all the changes.”

Specialists also warn the Australian Tax Office is targeting taxpayer abuse of generous work-related expenses covering travel, meals, clothes, phones and use of internet.

Some temporary concessions, such as a $20,000 instant write-off by June 30, enable small businesses to purchase computers, furniture, cars, even art.

Ken Fehily, director of tax specialist Fehily Advisory and champion of local artists, says: “Art improves the feel of your work environment for you and customers, helps artists and provides a tax deduction.”

Raftery says tax planning should be a 365-day per year exercise, not one merely carried out in the last few weeks before June 30.

While it’s important to make the most of the next five working days, Rafferty says it’s vital to start planning from the first day of the new financial year.

“It always surprises me when people think that tax planning only occurs in June each year. Well, it may for those who are either not very organised or perhaps have been swayed by some savvy retailers who make us think that the end of the financial year is when it all happens. But if you want to save as much as legitimately possible on your largest expense (tax), I encourage you to start tax planning on the first day of July each year.”


From July 1, a property investor can no longer claim a tax deduction for visits to residential rental properties.

Worked example of salary-sacrificing into super
Worked example of salary-sacrificing into super

“If you were planning to inspect your rental property, do it before June 30,” says Mark Chapman, director at H&R Block.

Bradley Beer, chief executive of BMT Tax Depreciation, says property investors can claim depreciation on items such as hot water systems, dishwashers, carpets, blinds and curtains, light shades, ovens, furniture, range hoods, smoke alarms and cook tops.

“Plant and equipment items are basically items that can be ‘easily’ removed from the property as opposed to items that are permanently fixed to the structure of the building,” says Raftery, author of 101 Ways to Save Money on your Tax Legally (Wiley).

They include carpets, blinds and light fittings. They are usually written off over five to 10 years.

Ken Fehily with the artwork he has acquired for his office using a $20,000 tax concession.
Ken Fehily with the artwork he has acquired for his office using a $20,000 tax concession. Josh Robenstone

The 2017-18 federal budget proposed a limit on depreciation deductions on residential rental properties to only those investors who actually purchased the plant and equipment.

Treasury is still finalising how the new rule will work.

In Victoria, off-the-plan stamp duty concessions will no longer be available for investors. That means an investor in a $2 million off-the-plan apartment in Melbourne might have to pay another $110,000. Some concessions have been switched to regional Victorian investors.In Queensland and Tasmania, first home buyers’ grants will revert back to $15,000 from $20,000 for new properties.

Super contributions

The cap on concessional contributions – which are made before income tax is deducted — falls from $30,000 (or $35,000 if you’re 50 or over) to $25,000 from July 1.

“If you’re able to make additional contributions to super, do it by June 30 to take advantage of the higher cap,” says Chapman.

If you salary-sacrifice into super, make sure your salary-sacrifice agreement with your employer reflects the new reduced $25,000 cap from July 1 to avoid breaching the cap.

The cap on non-concessional contributions, which are payments from after-tax income, is also falling $180,000 to $100,000.

“If you have spare cash, take advantage of the higher cap and pay some extra into your super by June 30,” says Chapman.

Super balances at June 30 will now be used for assessing eligibility to make non-concessional contributions for the next 12 months.

“If the super balance at June 30 is greater than $1.6 million, you will no longer be able to make non-concessional contributions in future years,” says Tim Mackay, principal of Quantum Financial, an independent financial adviser.

“If you want to take advantage of the bring-forward rule, this also drops from $540,000 over three years to $300,000 over three years. If your balance exceeds $1.6 million, you can no longer utilise the bring-forward rule,” says Mackay.

Making the contribution a day late could result in exceeding the new limits.

“It’s crucial you crunch the numbers correctly because any contributions made that exceed the cap will be taxed at 46.5 per cent rather than 15 per cent concessional tax rate,” Mackay says.

Spouse contributions to a fund have to be made on or before June 30 to claim a tax offset. The maximum tax offset is 18 per cent of non-concessional contributions up to $3000, or $540.

From July 1, the income threshold for spouses will increase from $10,800 to $37,000 in a financial year to receive the full tax offset. The cut-off threshold for spouses will also increase from $13,800 to $40,000.

Also from the new financial year, the super co-contribution will be available only to those with a total superannuation balance less than $1.6 m at the end of the previous financial year.

It will also not be available to those who have reached non-concessional cap for the year.

SMSF pensions

Nearly half of SMSF members are drawing a pension, a 7 per cent increase in the past five years.

“Do not overlook withdrawing a minimum pension for the 2016-17 financial year,” warns the SMSF Association’s Maroney.

For new pensions, the minimum pension amount is calculated as a percentage of the pension balance on the date it starts. For continuing pensions, it’s the balance on July 1 of the current income year.

Failing to take the minimum means you will be deemed not to be in retirement phase for the entire financial year, which means loss of the tax exemption status.

“Those in transition-to-retirement must take care not to exceed the maximum payment,” adds Maroney.

Mackay points to the potential for capital gains tax rollover relief if you move assets from pension to accumulation phase to stay under the new $1.6 million cap.

“If you are in pension phase at June 30, you may be eligible for capital gains tax rollover relief. This resets your cost base to June 30, 2017 but you need to speak to your advisor now and take action before the end of the financial year. This will ensure you don’t pay more tax than you need,” he adds.

Estate planning

Use this opportunity to update what happens to your assets when you die, particularly since the new super rules will force a rethink on how children inherit your retirement savings.

“We can say from years of experience the most important thing is to have an up-to-date will and enduring power of attorney (EPOA),” says Donal Griffin, a director of Legacy Law, which specialises in estate planning.

An EPOA is someone who makes financial and personal decisions on your behalf if you become unable to make your own decisions.

“It should refer to superannuation because changes to superannuation law over the last 10 years mean that there may be considerable tax payable on superannuation balances paid to children who are, by now, over 18.”

A properly drafted EPOA will allow a trusted person to take legitimate steps to reduce tax, he says.

Work-related expenses

Kath Anderson, Australian Taxation Office assistant commissioner, says the ATO is comparing taxpayers with others in similar occupations and income brackets to identify higher-than-expected claims related to expenses on vehicles, travel, internet, mobile phone and self-education.

“It is important to know what you’re eligible to claim before lodging your tax return and to make sure you don’t claim more than you’re entitled to,” Anderson says.

“One, you have to have spent the money yourself and can’t have been reimbursed. Two, the claim must be directly related to earning your income. Three, you need a record to prove it,” she says.

For example, deductions for work uniforms are a common mistake.

“It’s a myth that you can claim everyday clothes — for example, black pants and a plain white shirt — even if you only wear them to work, and your employer says you have to. To legitimately claim your uniform, it needs be unique and distinctive, such as a uniform with your employer’s logo, or be specific to your occupation and not for everyday use, like chef’s pants or coloured safety vests.”

Raftery says that those who use their car for work or business purposes can start their logbook before June 30 and complete it in the new financial year.

“If you use your car for work purposes and keep a log book for 12 weeks, then the deductions can be in the thousands,” he says.

“Make sure that you keep all costs associated with the running of your car (such as petrol, insurance, registration, servicing and lease payments) for the whole year, not just the period that you kept the log book.”

Raftery says that unless you are a small business (and can immediately write off the purchase of new business assets that cost less than $20,000), it is pointless buying a tax-deductible asset that costs more than $300 at the end of the financial year.

“This is because depreciation of these assets is pro-rata for the number of days that you own them during the financial year, resulting in a $1000 outlay on June 30 producing a measly $1 deduction at tax time,” says Raftery.

Source http://www.afr.com/personal-finance/taxsaving-strategies-to-get-in-place-before-june-30-20170620-gwux4v?


The six things Australians blame for high property prices, according to survey

Property prices in the country’s biggest capital cities have soared over the past five years, but a new survey shows Australians don’t all agree on what caused the boom.

Foreign investment was seen as the biggest culprit for high house prices by more than half of those asked by Galaxy Market Research on behalf of State Custodians in April.

And the older the survey respondent, the more likely they were to say this was a factor.

The six things Australians blame for high property prices. Photo: Henry Zwartz

In Gen Y, 49 per cent thought foreign buyers were to blame for high house prices, while 72 per cent of those aged 65 plus said the same.

The other factors all respondents believed were contributing to house price growth were overpopulation, property investment and negative gearing incentives, high transaction costs, low interest rates and low supply.

While all these factors likely had an impact, it was the “perfect storm of all of them together leading to the market we are experiencing today”, State Custodians general manager Joanna Pretty said.

Foreign investment was targeted in the government’s 2017 budget, restricting the number of homes able to be sold in a new development to just half the properties and an introduction of a tax for those who don’t put their investments up for rent.

“The budget changes go some way to help regarding the foreign investment levels, but the other factors still exist and there is still a lot of work to be done regarding affordability generally,” Ms Pretty said.

Low interest rates were likely having a bigger impact than overseas investors, The Successful Investor founder Michael Sloan said.

“It’s easy to blame foreign buyers for increasing house prices but that is not the reason property prices are increasing,” he said.

“Anyone who can buy at these low rates is buying and this puts more buyers in the market and that pushes up prices.”

Mr Sloan said property investors were an “easy target’ and population growth was good for the economy.

“Of course, home buyers don’t like to see prices rising but property prices have stayed ahead of inflation for decades. So that means it is a normal part of the cycle.”

Compass Economics chief economist Hans Kunnen was also adamant that foreign investors didn’t affect house values, but they could be causing apartment prices to rise.

“Foreign investors buy apartments more than houses and when you’re looking at house prices it’s not foreign investors pushing prices up,” he said.

He did think they had an impact on apartment prices, but noted house prices had risen far more quickly than apartment values had.

Predominantly, the problem was a low supply of properties being built – something he was surprised wasn’t ranked higher.

But Property Finance Made Simple author Andrew Crossley said the list of reasons was “little surprise” to him.

Given the restrictions on foreign buyers he “did not agree that foreigners should take the full blame”, instead saying they were a contributing factor.

He agreed population growth and investment properties had made an impact, but said it was low interest rates that were the biggest contributing factor as they allowed people to afford bigger mortgages.

“The reality is that the housing affordability crisis is mostly centred around Melbourne and Sydney, this has not been a normal cycle of growth in these cities, it has been extreme,” he said.​

SOURCE https://www.domain.com.au/news/the-six-things-australians-blame-for-high-property-prices-according-to-survey-20170511-gw2cei/

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